US shale investors still waiting on payoff from oil boom

Shale output growth continues to outpace forecasts. The U.S. Energy Information Administration this month said United States production could top 11 million barrels per day by the end of 2018, a year earlier than it had expected just a month ago.

Heltman has pressed shale firms to show restraint even amid rising prices. And despite higher revenues, spending increases have so far been restrained.

Producers have pushed up spending plans for all of 2018 by 10 percent over last year, according to a tally of 41 of the 65 producers tracked by financial services firm Cowen & Co.

Some companies have maintained conservative assumptions for the average oil price for 2018, budgeting for prices between $50 and $55 a barrel.

A higher price will mean they can cover new drilling investments and still pay dividends.

Investors are searching for firms that can find the optimal balance between the conflicting goals of controlling costs, paying dividends and increasing production.

“We’re looking to invest in those companies who have been able to improve their production and win the battle as far as cost of extraction,” said Derek Rollingson, portfolio manager of the ICON Energy Fund, which holds shares of more than a dozen U.S. shale producers.

A further rise in oil prices, however, could lead investors to take on more risk and penalize more conservative companies, said Mike Breard, an energy analyst at Hodges Capital Management in Dallas.

“If oil is $65 by Easter,” he said, “investors are going to go to the companies and say, ‘Why don’t you borrow more money and drill more wells?'”